The Worst Case Scenario For The Bond Market

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The Worst Case Scenario For The Bond Market (Business Insider)

While we didn't get higher interest rates this year as many on Wall Street had predicted, analysts point out that higher rates are inevitable. Business Insider asked Meg McClellan, global head of fixed income market strategy at JP Morgan Asset Management what she thought would be the worst case scenario for the bond market. "We've seen unemployment come down pretty dramatically, there is some concern that the Fed may be behind the curve on inflation," she said. "But what I think the Fed is really watching is the wage inflation number."

"We've seen unemployment come down pretty dramatically, there is some concern that the Fed may be behind the curve on inflation. So if you look at wage inflation now, Janet Yellen thinks 3-4% is a normal range, so if you start to see that wage inflation pick up, that's what's really going to drive up consumer prices very quickly, and the Fed's going to act quickly. And we know that the Fed has to act quickly in a way that we've had this really good strong pretty consistent messaging so far. And that quick sharp movement would be something that would upset the bonds very quickly.

"We're watching the wage inflation number pretty closely, but again we're at the point in the cycle where price inflation and wage inflation, are rising very gradually, we don't see a threat right now but more of a confirmation of recovery, but that's something you want to watch very closely."

The U.S. Doesn't Face A Major Stock Market Correction Just Yet (AllianceBernstein Blog)

Vadim Zlotnikov at AllianceBernstein does not expect a big stock market correction just yet. "Turning back to the current environment, we can speculate about a negative market surprise due to declines in 2015 earnings and profit margins, but we haven’t seen the traditional sources of cyclical excesses that have been precursors—overly optimistic hiring and capital spending as well as indiscriminate merger-and-acquisition and initial-public-offering activity," he writes. "We think these are coming—just not yet. Also, there are no signs of deteriorating earnings revisions, and fundamentals are stable or improving in most regions besides Europe."

Zlotnikov thinks we could see a small 5-10% correction, but he doesn't "expect a major correction until the yield curve flattens further—or when we see more of a buildup in corporate excesses." Because of that Zlotnikov warns against "all out de-risking." "An attractive alternative could be selectively reducing exposure or even hedging the most crowded trades using put options."

30 Years Ago Warren Buffett Gave Away The Secret To Good Investing And Correctly Predicted No One Would Listen (Business Insider)

Warren Buffett first put out his investment philosophy in May 1984 during a speech at Columbia Business School. He introduced The Superinvestors of Graham-and-Doddsville. "The common intellectual theme of the investors from Graham-and-Doddsville is this: they search for discrepancies between the value of a business and the price of small pieces of that business in that market," according to Buffett. "And that's pretty much it. Buffett doesn't think about buying a stock; he thinks about buying a business," writes Business Insider's Myles Udland.

Advisors Need To Pay More Attention To The Risk Of Client's Owning Too Many Assets (The Wall Street Journal)

"When it comes to retirement planning, most financial advisers focus on making sure clients don't outlive their money," writes Howard Hook, a certified financial planner with EKS Associates, in a WSJ column. "While this is key, there is a serious risk that many people don't focus on: clients who leave too much money on the table when they die. What's more, when these clients die, their children and grandchildren end up paying a premium in estate taxes."

"...Helping somebody plan for having too many assets is a unique situation, and advisers shouldn't give up right away if a client is resistant to the idea of giving away money while they are alive. Instead, advisers should try to get clients to recognize the emotional benefits of giving away money while they are alive. When you phrase it that way, most clients get it."

See Also:

Now Is A Good Time For Investors To Look At The Rate Sensitivity In Their PortfoliosHere's Why The UK May Not Hike Rates Until Well Into 2015 The Return Of Volatility Suggests Investors May Want To Start Getting Defensive